The year 2024 witnessed remarkable gains in the stock market, particularly for diversified investors. With the Nasdaq soaring 29% and the S&P 500 climbing 23%, much of the growth was driven by the seven largest American tech companies. These tech giants were pivotal in fueling the broader market rally, making up more than half of the total market gains.
The rapid growth of artificial intelligence (AI) stirred enthusiasm across sectors, especially as Big Tech invested heavily to support anticipated demand. Some even revived older infrastructures, such as the Three Mile Island facility, to help meet this rising need. Investors, especially those holding index funds tied to U.S. equities, were quick to capitalize on AI’s surge, benefiting from rising valuations and increased returns. Despite recent disruptions over potential AI tech developments in China, experts agree the AI boom is far from over.
Sustainability-focused investors also saw strong performance in 2024. Exchange-traded funds (ETFs) in this space experienced a significant inflow, nearly doubling to over $1 trillion globally. While many of these funds did not outpace the broader market, they still posted solid returns, with the tech sector again leading the way. Tim Nash, founder of Good Investing, noted that sustainable funds focusing on “doing less evil” performed well overall, despite occasional challenges, such as investments in controversial sectors like weapons manufacturing. Nvidia, however, stood out as one of the highest performers, bolstering sustainable funds that exclude companies like Amazon and Meta.
The energy sector, however, posed difficulties for green investors. Although fossil fuel divestment was rewarded in 2024, clean energy stocks struggled again, with some of the worst-performing ETFs in the market tied to this sector. “Green investors can’t be too smug,” Nash remarked, pointing out that while the fossil fuel-free approach had its merits, green energy stocks had another underwhelming year.
A key challenge for sustainable investing is the difficulty in comparing different funds, due to the varied methodologies used to assess sustainability. ETFs and mutual fund managers rely on different data providers and ratings systems, making it tough for investors to directly compare funds. For example, while Corporate Knights assigns Nvidia a low sustainability score, other rating agencies like MSCI give it a higher rating. Michael Yow, Director of Ratings at Corporate Knights, explained that the firm’s approach is based largely on quantitative data, contrasting with other providers who may lean on more qualitative factors.
As sustainable investing gains traction, several funds stand out in key categories. The Invesco Canada QQCE ETF, which tracks the Nasdaq-100 ESG Index, reported an impressive 32.89% return in 2024. Despite its relatively short history since its 2021 launch, QQCE has rapidly attracted investors, amassing $309 million in assets. Top holdings include Microsoft, Apple, and Nvidia.
In the Canadian equity space, RBC’s Vision QUBE FFF LV Canadian Equity Fund A, an actively managed mutual fund, focuses on fossil-free investing and targets lower-risk stocks. This fund, launched in 2021, posted a one-year return of 21%, outpacing the S&P/TSX Capped Composite Index. It holds $188 million in assets and is marketed as a long-term, low-to-medium risk investment.
For international equity, the Franklin ClearBridge Sustainable International Growth Fund has garnered attention. Excluding fossil fuel companies, this fund relies on ClearBridge’s proprietary ESG ratings and focuses on large companies. With a medium-risk rating and $314 million in assets, the fund posted a 15.12% return in 2024, aligning closely with its benchmark, the MSCI EAFE Index.
On the global stage, the CI MSCI World ESG Impact Index ETF stands out as a medium-volatility option that screens for stocks with positive environmental and social impacts. This fund, which tracks the MSCI World ESG Select Impact ex Fossil Fuels Index, has returned 0.3% over the past year and offers a low-carbon investment approach. Although its performance lagged in 2024, the fund’s three- and five-year returns are solid, around 8%. It holds $61.2 million in assets, with top positions in Dassault Systèmes, Novo Nordisk, and Equinix.
In conclusion, 2024 was a strong year for both tech-driven and sustainable investment strategies. While AI continues to dominate, sustainable investors have also seen solid growth, although challenges remain in both the green energy space and in comparing funds across varying sustainability metrics.
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